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Strategies & Market Trends : The Art of Investing
PICK 50.39+1.1%Dec 11 4:00 PM EST
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To: Cymeed who wrote (61)9/8/1998 12:23:00 PM
From: Sun Tzu  Read Replies (3) of 10695
 
Ok I grant you that it is more efficient for companies to operate in a low interest rate environment than a high interest one, if all things are equal. The important thing is the context in which the interest rates operate. If a good chunk of the world is in a 1930 style depression and as such cannot buy from KO, AMAT, HWP, ... then the interest rates can go to zero for all that matters and HWP still will not have any earnings power (hence the high PE scenario of Nikkei that you described) and as such its stock will fall. If there are 26 memory makers out there but the world needs only 4 or 5 of them, all the IMF funding in the world will not save them (in fact it will prolong the suffering).

My point being that if the cut in the interest rates gives rise to enough earning power for the companies to make them attractive relative to the bond yields, then the rally is justified. Otherwise, I should use the opportunity to raise cash while I can.

Your point about not arguing with the tape is well taken. No one has ever survived in the market by fighting the tape. But you need a view so that you can distinguish the difference between a dip in which to buy in, and a dip which signals the begining of an avalanche.

ST
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